Toyota is offering free credit on a new $10,000 car. You pay $1,000 down and then $200 a month for the next 50 months. Nissan Motors next door does not offer free credit but will give you $9000 cash. If the rate of interest is 0.63% a month, which company is offering the better deal?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Q1)Toyota is offering free credit on a new $10,000 car. You pay $1,000 down and then $200 a month for the next 50 months. Nissan Motors next door does not offer free credit but will give you $9000 cash. If the rate of interest is 0.63% a month, which company is offering the better deal?

Expert Solution
Step 1

Formulas:

For Toyota

Total cost = Down payment + (Amount*(1-(1+rate)^-periods)/rate

-------------------------

For Nissan

Total cost = Amount - discount

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